Quote:
Originally Posted by DoubleF
Assuming $100K salary, $10K bonus, $10K RRSP contribution...
T4 should show $110K in compensation because the $10K (although deferred) is actual compensation received during the year (it's legally her money)
Your wife should have a $10K RRSP contribution slip which is a deduction.
Taxable income should then basically be for those items $100K.
Now keep in mind, tax deferral is not the same as tax savings.
Use your RRSP correctly, you're reducing your taxable income in the higher tax brackets and withdrawing when retired (presumably) in the lower tax brackets. That spread is a tax savings.
But tax deferral (ie: pay taxes later) if used incorrectly, can often mean you pay more taxes than if you didn't defer at all. That's because the deferred amounts come into taxes all at the same time, which means it potentially is taxed in higher tax brackets than the bracket it was deferred from.
Like delaying a minor plumbing repair to preserve cashflow for a leak that's a few drips vs delaying too long and the damage is far worse than the cost of just doing the repair earlier when everything flushes out at once.
Now, I seriously have to ask... by "dinged a few grand in tax", what do you mean?
Total payable (line 43500) vs the amount you have to pay at year end (Total payable line 43500 minus Total credits line 48200) are different things. There's a difference for each line if you say, "How do I reduce my taxes owing?" I have run into this confusion many times.
For line 43500, it's basically to reduce your income or ensure you have all your appropriate deductions at year end. For balance owing, it's stuff like increasing deductions from slips, paying installments etc. to prepay your tax balance prior to filing your tax return.
Additionally... the income tax deducted on the tax slip is not a calculation of taxes. It is just an amount that is prepaid to the CRA for taxes that will be owed once the taxes are calculated with everything included.
So, it's not "bonus paid tax free to the RRSP account" then counted as income on the T4 slip. It's more like bonus transferred to the tax account with no prepayment of tax to the CRA before transfer.
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Ok, so your still paying tax on the total income ($110,000 in your example) but you are getting a deduction on RRSP contribution to reduce your net income correct?
So, owing no other deductions, my income is $110,000, with 10k in RRSP deductions, would give me a net income for tax purposes of $100,000?
The only reason i ask is she has done this now for 3-4 years and always pretty much ends with no refund or balance as she is basically earning a consistent salary then using bonuses for RRSP. First time it's happened where she owes anything.